Texas Insurance Law Newsbrief - December 10, 2024
BREACH OF CONTRACT AND BAD FAITH CLAIMS WASHED AWAY BY SURFACE WATER AND FAULTY WORKMANSHIP EXCLUSIONS
The U.S. Court of Appeals for the Fifth Circuit examined coverage issues arising from surface water and faulty workmanship exclusions and agreed with the trial court’s ruling that there was no coverage under the policy and that the insured’s extracontractual claims failed as matter of law.
In Benitez v. AmGuard Insurance Company, N. 24-20140, 2024 U.S. App. Lexis 30764 (5th Cir. December 5, 2024), the insured’s tenant-daughter had the pool deck renovated in March of 2021, which included the removal of flower beds next to the residence and the addition of a few small drains. In June 2021, the insured presented a water damage claim of “unknown origin” though suggesting that a leaking shower pan may be the cause. AmGuard’s investigation concluded that water pooled against the house and seeped into the house through weep holes during heavy Texas rains. AmGuard then denied the claim and the lawsuit followed.
AmGuard learned through discovery that the contractor had admitted faulty workmanship, and that the insured’s tenant-daughter was simultaneously presenting a claim with the pool contractor’s general liability insurer which paid $35,000 for water remediation, new flooring, drywall, and paint. The insured, Benitez, paid roughly $25,000 for the repairs. Considering its findings through its initial investigation, discovery which uncovered the pool contractor’s insurer’s investigation, and AmGuard’s expert report all finding that the pool renovation and inadequate drainage caused the loss, AmGuard moved for summary judgment. The insured offered no competing evidence, but instead presented arguments involving the definition of “surface water” from the Texas Water Code. He failed to explain, however, how it differed from Texas’ well-established definition of surface water as waters:
“which have diffused themselves over the surface of the ground, following no defined course or channel, and which have not gathered into or formed a natural body of water, and are lost by evaporation, percolation or natural drainage.”
The court concluded that the exclusions applied, and that the insured’s extra-contractual claims fared no better. And because the insured proved no damages recoverable under the policy and he raised no “material fact of an “injury independent of a right to benefits” summary judgment on all claims was affirmed.
Editors Note: Our law firm, Martin, Disiere, Jefferson and Wisdom, LLP had the privilege of representing AmGUARD at the trial court and on appeal, and we congratulate them and Chris Martin, Jamie Cooper and Kevin Cain on this significant win.
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U.S. DISTRICT COURT CONCLUDES THAT “INDEPENDENT-INJURY RULE” PRECLUDES INSURED’S RECOVERY OF DAMAGES; COURT GRANTS INSURER’S MOTION FOR SUMMARY JUDGMENT
The United States District Court for the Southern District of Texas recently granted State Farm’s motion for summary judgment, concluding that the insured failed to provide evidence of independent-injury damages caused by the alleged statutory violations that stemmed from the non-payment of the policy benefits.
In Henry v. State Farm Fire & Cas. Co., No. 4:21-cv-01139, 2024 U.S. Dist. LEXIS 172517 (S.D. Texas [Houston Division], September 24, 2024, mem. op.), Jocelyn Henry was rear-ended by a vehicle in which the driver fled the scene without stopping to provide information. Henry had uninsured motorist coverage through a policy with State Farm. Henry submitted a claim, but State Farm did not pay the policy benefits. Consequently, Henry filed suit against State Farm asserting contract claims for the benefits under the policy and statutory claims under the Texas Insurance Code and Deceptive Trade Practices Act. Subsequently, the parties reached a settlement after mediation.
After the settlement, State Farm filed a motion for summary judgment, arguing that the settlement payment resolved the contractual claims as a matter of law and that the statutory claims were recharacterizations of the same damages stemming from the contractual claims. In response, Henry conceded that the contractual claims resolved via the settlement, but Henry argued that her claims under the Texas Insurance Code were supported by evidence showing that State Farm compelled her to file suit to recover the amount due, despite the clear right to the policy benefits, and her claim of violation of the DTPA was supported by evidence of State Farm's obligation and refusal to pay benefits.
The court began its analysis by noting that the Independent-Injury Rule “precludes the recovery of damages beyond policy limits based on statutory claims unless the violation causes an injury independent of the loss of the benefits.” “This rule is founded in the long-recognized principle that a claim for breach of an insurance contract is distinct and independent from claims that the insurer violated its extra-contractual common-law and statutory duties." The court concluded that “since [Henry] failed to provide evidence of independent-injury damages caused by the statutory violations that do not stem from the unpayment of the policy benefits, there [was] no genuine issue of material fact supporting [Henry’s] extra-contractual claims.” The court reasoned that Henry’s summary-judgment evidence (i.e., police accident report, the declaration insurance coverage, Henry’s affidavit regarding the accident, the lack of immediate benefits, and Henry’s medical and medical billing records) spoke “only to damages related to the accident that should have arguably been covered by the policy” and “Henry provide[d] no evidence of harms created by the [alleged] statutory violations that [were] independent of the non-payment of policy benefits.” Accordingly, the court granted State Farm’s motion.
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ARTFUL PLEADING DOESN’T EXCUSE FORUM SELECTION CLAUSE
In Havercombre Ventures Ltd. v. Spheric Assur. Co., 2024 Tex. App. LEXIS 7948 (Tex. App.—Dallas November 13, 2024), Spheric sold Havercombre a marine insurance policy for an 80-foot yacht, that included a forum selection clause that required jurisdiction to be submitted to the British Virgin Islands (where Havercombre and Spheric were organized).
After the yacht caught fire and sank in August of 2022, and Havercombre denied coverage for certain claimed warranty breaches, Havercombre sued Spheric in Bexar County, Texas, for violating the Texas Insurance Code, breaching the duty of good faith and fair dealing, fraud, and violating the Deceptive Trade Practices Act. Conspicuously absent were any breach of contract claims.
When Spheric moved to dismiss the lawsuit from Bexar County due to the forum selection clause, Havercombre argued that the forum selection clause found in the insurance contract did not apply to this lawsuit because it did not pursue any breach of contract claims. Spheric argued that the forum selection clause certainly, but not exclusively, applied to breach of contract claims. The trial court and the Dallas Court of Appeals agreed, holding that “[w]ithout the contractual relations. . . the acts giving rise to the causes of action sounding in tort would not have occurred.” The Court further did not want to give all plaintiffs the ability to disregard forum selection clauses by simply not pleading breach of contract. Accordingly the Dallas Court of Appeals affirmed the trial court’s dismissal of Havercombre’s lawsuit.
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DENYING A CLAIM ISN’T WAIVING THE RIGHT TO APPRAISAL
In In re Surechoice Underwriters Reciprocal Exch., 2024 Tex. app. LEXIS 8000 (Tex. App.-Houston [14th Dist.] November 14, 2024), Nicole Glasper filed a property claim for storm damage with her insurance company, Surechoice. Surechoice estimated storm related damages of just over $1,500, which was less than her deductible, so it denied her claim.
Glasper hired an adjuster that estimated her damages to be over $28,000. Glasper sent a demand, and then filed a lawsuit against Surechoice alleging breach of contract, breach of the Deceptive Trade Practices Act, violating the Texas Insurance Code, and breach of the duty of good faith and fair dealing. Surechoice then filed a Motion to Compel an appraisal pursuant to the insurance policy’s provisions. Glasper argued that this matter involved causation, not simply a gap in two coverage positions, which in Glasper’s opinion, appraisal was meant to address: “an appraisal here is simply not necessary because [i]t does not resolve causation issues.” She further argued that Surechoice waived its right to appraisal by issuing a denial letter. The trial court in Houston denied the Motion to Compel Appraisal, and Surechoice successfully obtained mandamus relief from the Houston appellate court.
The Texas Court of Appeals in Houston found that (1) appraisal is not precluded merely because there are disputed coverage issues and (2) Surechoice’s act of sending a denial letter did not constitute a waiver of its appraisal rights. Concerning the waiver issue, whereas Glasper argued in part that the parties had reached an impasse, the Court held that “[i]mpass only arises if both parties ‘believe additional negotiations would be futile,’” citing a San Antonio court of appeals case. The court accordingly ordered the trial court to require the parties to engage in the appraisal process.
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U.S. DISTRICT COURT CONCLUDES THAT THE INSURED OFFERED NO EVIDENCE INDICATING THAT SHE WAS INJURED BY THE UNINSURED MOTORIST; DISMISSES UM/UIM CLAIM AGAINST THE INSURER
The United States District Court for the Southern District of Texas granted summary judgment for the insurer in a UM/UIM claim, because insured offered no evidence indicating that the accident involving the uninsured motorist caused her any injury.
In Mann v. Amica Mut. Ins. Co., No. 4:23-cv-01148, 2024 U.S. Dist. LEXIS 201881 (S.D. Texas [Houston Division], Nov. 6, 2024, mem. op.), Manuela Moro was traveling in a vehicle when an uninsured motorist collided with her vehicle, causing her to claim personal injuries. Moro subsequently brought a declaratory judgment action against her insurer, Amica Mutual Insurance Company (“Amica”), seeking a judicial declaration that she was entitled to recover uninsured motorist benefits under her policy with Amica. In response, Amica filed a motion for summary judgment, arguing that declaratory relief was inappropriate because Moro's treating doctor testified that “it was fair to say, based on the information [known], [that he/she] just [didn’t] know whether the degenerative changes or the disc prolapse or herniation were degenerative or acute or caused by the accident.” As such, Amica argued that Moro could not establish that she was entitled to damages from the uninsured motorist as a result of the motor vehicle accident. The court agreed and granted summary judgment.
In granting summary judgment, the court began its analysis by noting that “a UM/UIM insurer's contractual obligation to pay benefits does not arise until liability and damages are determined. Neither requesting UM/UIM benefits nor filing suit against the insurer triggers a contractual duty to pay.” The court acknowledged the testimony of Moro’s treating doctor and reasoned that Moro offered no evidence indicating that the accident caused her any injury. “Because Moro has failed to carry her burden of establishing that the accident at issue resulted in any damages, she cannot show that she is entitled to policy benefits.”
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U.S. DISTRICT COURT CONCLUDES THAT ALLEGED SETTLEMENT AGREEMENT WAS NOT ENFORCEABLE AS PLEAD IN COMPLAINT; DISMISSES INSURER’S BREACH-OF-CONTRACT CLAIM SEEKING TO ENFORCE AGREEMENT
The United States District Court for the Western District of Texas concluded that the facts alleged in the insurer’s Complaint –i.e., the defendants’ attorney emailed the plaintiff’s attorney memorializing a verbal personal-injury settlement, and the plaintiff’s attorney replied accepting the settlement– was insufficient to state a claim upon which relief could be granted.
In Arch Ins. Co. v. Candelario, No. 5:24-CV-00152-FB-RBF, 2024 U.S. Dist. LEXIS 213128 (W.D. Texas [San Antonio Division], Nov. 21, 2024, mem. op.), Arch Insurance Company was the insurer for Anadarko Petroleum Corporation and Western Gas Partners, the defendants in a personal-injury lawsuit. The plaintiff in the personal-injury lawsuit was Rita Candelario. A settlement was allegedly reached, and the defendants’ attorney emailed the following to the plaintiff’s attorney:
This letter shall memorialize our conversation this evening in which you confirmed you will accept [$300,000.00] from Arch as its contribution to a full and final settlement of all claims presented by Mrs. Candelario in the Reeves County personal injury action. If this comports with our agreement, please respond confirmed.
The plaintiff’s attorney replied: "Ms. Candelario accepts the $300,000.00 settlement offer from Arch.” However, Candelario subsequently failed to release her claims against the defendants. Consequently, Arch refused to pay the $300,000 to Candelario and filed suit against her, asserting a claim of breach of contract and seeking to have the court enforce the alleged settlement agreement. In response, Candelario filed a Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted, which the court granted.
The court concluded that Arch “pleaded no agreement on all material terms such that an enforceable contract [was] at issue.” The court reasoned that although the emails included statements of an offer and acceptance, the “emails [did] not evidence a definite agreement as to all material terms because there [were] parties and material terms missing.” Further, “by its plain terms, the ‘agreement’ embodied in the emails is an agreement as to an amount of money Arch would pay Candelario as Arch's ‘contribution’ to a global settlement ‘of all claims [p]resented by Mrs. Candelario.’” However, the personal-injury lawsuit involved claims by Candelario against Anadarko and Western Gas, and Arch was not a party to the lawsuit. “The Court cannot understand the parties' obligations with respect to a ‘full and final settlement’ to which Arch's $300,000 is but a ‘contribution.’ How could Candelario have settled with Arch when there is no indication that Candelario settled with Anadarko and Western Gas? It is nonsensical to conclude that Candelario intended to settle all claims, including claims between her and Anadarko and Western Gas, in exchange for only $300,000 from Arch and with no signature or agreement to provide releases from either Anadarko or Western Gas. Did Arch even have authority to settle for Anadarko and Western Gas? It certainly didn't purport to sign for them.” In sum, the court concluded that “[w]ithout some indication as to the status of Anadarko and Western Gas's obligations under a ‘full settlement of all claims,’ Candelario's agreement to a $300,000 price term [was] not enforceable.” Accordingly, the lawsuit was dismissed.
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